Constitution of India, 1950 (COI) – Article 226 and Article 227 – High Court’s writ jurisdiction to issue Writ of Prohibition when there is a clear absence of jurisdiction.

Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) – Section 2(1)(m)(iv) – Definition of "Financial Institution" – Section 14 – Application for assistance in taking possession of secured assets – Notification dated 24th February 2020 and its amendment on 12th February 2021.

Reserve Bank of India Act, 1934 (RBI Act) – Section 45-I(f) – Definition of Non-Banking Financial Company (NBFC).

The Bombay High Court held that the 3rd respondent did not qualify as a "financial institution" under Section 2(1)(m)(iv) of the SARFAESI Act since its asset size was below the Rs.100 crores threshold. Consequently, it could not invoke the provisions of Section 14 for seeking assistance in taking possession of secured assets. The Court issued a Writ of Prohibition preventing the Chief Metropolitan Magistrate from proceeding with Securitization Case No.598 of 2024.

Subjects:

Writ of Prohibition, Jurisdiction, Financial Institution, Secured Creditor, SARFAESI Act, Chief Metropolitan Magistrate, Non-Banking Financial Company, Notification, Possession of Secured Assets.

Nature of the Litigation: Writ Petition under Articles 226 and 227 of the Constitution of India challenging the jurisdiction of a non-financial institution to initiate proceedings under the SARFAESI Act.

Petitioner’s Remedy Sought: Issuance of a Writ of Prohibition restraining the Chief Metropolitan Magistrate from proceeding with Securitization Case No.598 of 2024.

Reason for Filing: The petitioner contended that the 3rd respondent, M.J. Shah Capital Pvt. Ltd., was not a “financial institution” as defined by Section 2(1)(m)(iv) of the SARFAESI Act and thus could not invoke the provisions of Section 14 of the said Act.

Previous Decisions: The Chief Metropolitan Magistrate had not yet passed any order under Section 14 of the SARFAESI Act.

Issues:

a. Whether M.J. Shah Capital Pvt. Ltd. qualified as a "financial institution" under the SARFAESI Act. b. Whether the application under Section 14 of the SARFAESI Act by the 3rd respondent was maintainable. c. Whether the Writ of Prohibition could be issued in the absence of an order by the Chief Metropolitan Magistrate.

Submissions/Arguments:

Petitioner’s Arguments: a. The 3rd respondent’s asset worth was Rs.16.30 crores, below the Rs.100 crores threshold as per the Notification dated 24th February 2020. b. The 3rd respondent did not qualify as a “financial institution” and thus could not be considered a “secured creditor” under Section 2(1)(zd) of the SARFAESI Act. c. Jurisdictional issues can be raised even before an order is passed, making the Writ of Prohibition a valid remedy.

Respondent’s Arguments: a. The Writ Petition was premature as no adverse order had yet been passed by the Chief Metropolitan Magistrate. b. The petitioner had an alternative remedy available under Section 17 of the SARFAESI Act. c. The loan agreement predated the Notification and hence the notification’s conditions should not apply retrospectively.

Ratio:

Only institutions meeting the criteria specified in the Notification dated 24th February 2020 and its amendment on 12th February 2021 can qualify as “financial institutions” under the SARFAESI Act and exercise the rights available under Section 14. Absence of jurisdiction on this ground justifies the issuance of a Writ of Prohibition.